Do you have an existing car loan? If so, it’s possible that you could get a better deal on your interest rate by refinancing. When new members hear about our rates at Addition Financial, they often want to know if it’s worthwhile to refinance their car loan.
Evaluating auto lenders can be tricky, especially if you’re refinancing. What factors should you consider to help you choose the best auto loan lender? Here are some questions to ask of any potential lender and other considerations to help you decide.
What is the Range of Interest Rates for Refinancing Auto Loans?
This first question will give you an idea of whether the lender's rates are reasonably competitive. You should expect to hear a lot of talk about how your actual rate will depend on your credit score and other factors. That said, any reputable lender should be able to give you an idea of what to expect.
The purpose of this question is to help you narrow your search. Some lenders may have rates that are too high. Of course, it’s also a good idea to be wary if someone promises you the moon at this stage.
The Requirements for Borrowers and Vehicles
Each lender sets its own guidelines for loans including automobile refinancing. For example, they might only refinance if your credit score meets a certain minimum requirement. The balance of your current loan may also be a factor since some lenders have a minimum they will lend for an automobile.
Restrictions may apply to your vehicle, too. Some of the most common restrictions include:
- The mileage of the vehicle
- Your car’s depreciation and Kelley Blue Book value
- The principal amount of the loan
- Interest payments
- Closing costs and other fees
As a rule of thumb, you may have a difficult time refinancing if you owe significantly more on your current loan than the value of the car. Mileage requirements vary from lender to lender, but refinancing is typically only available for cars that have been driven fewer than 100,000 miles.
The Length of Your Loan
Loan repayment terms vary from lender to lender and contract to contract. It’s a good idea to get a feel for what each lender can offer when it comes to the repayment term of your loan.
Depending on your financial circumstances, you might want a shorter loan period than your current loan to enable you to pay less in interest. Or, if you want to ease your financial burden, a longer loan period can decrease your monthly payments. Most lenders allow up to 6 years to repay, even on a refi, but you won’t know unless you ask.
Are There Any Prepayment Penalties?
This next question is an important one to ask before accepting any loan. Even if you intend to make your monthly payments for the life of your loan, you might decide to pay off your loan early.
Incidentally, make sure to check your current loan agreement for prepayment penalties as well. If the loan terms include a prepayment penalty, you’ll need to be prepared to pay those penalties at the same time you refinance the loan.
What is the Total Cost of Refinancing?
The point of refinancing is to save money, so you'll need to consider fees and other costs. Pinning down specific costs may require submitting multiple loan applications. Most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time.
It’s essential to make an apples-to-apples comparison between loans before you decide which refinancing option is best for you. It isn’t enough to simply compare interest rates and principals. You can protect yourself by asking for a full accounting of all fees and costs from all the auto lenders who have offered you loans and compare those numbers before you sign on the dotted line.
Read the Fine Print
The final piece of advice we can offer is to read the fine print of your loan before you sign. Even after you’ve asked questions and received answers from your lender, it’s essential to remember that the only way to be sure you understand the terms of your loan is to read the entire document.
Because loan documents can sometimes be confusing, you may want to consider having a lawyer read it on your behalf. Either way, ask questions if anything confuses you and don’t sign until you’re sure you understand what you’re agreeing to.
Evaluating auto lenders can seem like a lot of work, but the tips we’ve provided here can help you get through the process and choose the lender that’s right for your refinancing goals.
To learn more about Addition Financial’s auto loan refinancing options, please click here.
Posted on Sep 22, 2018
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